Altria Group communicated that from restricted stock awarded to the company's executives in January 2014 vested, the Company deducted a number of shares necessary to satisfy minimum statutory withholding taxes, according to Altria Group's shareholder-approved performance incentive plan.
Source of data: Altria Group SEC Filings
On Feb. 13, Altria Group closed at $72.04 per share, down 38 cents or minus 0.52% from the previous trading day with a volume of 5,175,932 shares traded on the stock market versus an average volume of 4.97 million shares traded over the last 10 trading days and an average volume of 6.61 million shares traded over the last three months.
Year to date the tobacco giant gained 6.54% and is trading at 7.24 times its sales, and the price-earnings (P/E) ratio is 9.89. The price-sales (P/S) and the P/E ratios are computed over a 12 trailing months’ time frame.
The current share price, $72.04, is 0.43% over the analysts’ average target price per share of $71.73, which ranges between a low target price per share of $62 and a high target price per share of $80.
The recommendation rating is 2.2. The recommendation rating ranges between 1.0 (Strong Buy) and 5.0 (Sell). This means that analysts still see Altria as a buy even though the stock has reached the target price set by analysts, which is the average of 11 analysts’ estimates of Altria's share price in 52 weeks’ time.
With the majority of analysts still recommending buying shares of Altria Group, one may wonder whether the stock still represents a good buying opportunity and therefore is not overvalued by the stock market according to the current share prices.
One way to determine whether Altria is overvalued is assessing its intrinsic value and comparing it with the share price. If the intrinsic value is at least 50% over the current share price (the difference is called margin of safety), then the stock is not overvalued and still represents a buying opportunity for the defensive investor.
Since Altria Group is a faithful dividend issuer, a proper way to assess its intrinsic value is through a dividend discount model, which variables are chosen as follows:
- The annual dividend is assumed to increase 7.85% annually, according to Reuters.com. Therefore, at the fifth year (2021), the company’s annual dividend is estimated to be $3.56, as shown in the picture below:
- The discount ratio used is 8.63%. This is an average of the entire industry.
- A percentage of 7.90% is considered as the constant growth rate in perpetuity expected for the dividend, according to the analysts' estimates (next five years’ growth per annum):
Source: Yahoo Finance
The first step is to calculate the terminal value of Altria Group.
Altria Group's terminal value is calculated as $3.56 x 1.079/ (8.63% - 7.90%) = $48.33.
The second step is to calculate the present value of the stock.
Altria Group's present value is calculated discounting the stream of forecasted annual dividends and the terminal value according to a rate of 8.63%, as shown in the picture below:
The third step is to calculate the intrinsic value as the present value minus the net debt.
As of March 31, 2016, Altria Group has a net debt of $4.80 per share.
Therefore, the intrinsic value of Altra Group calculated according to this method is $48.33 - $4.80 = $43.53 which shows that Altria is currently overvalued by the market. Therefore, it is not a buy according to this way of assessing the tobacco stock, which is of course not the only one.
Investors who already hold shares of Altria Group in their portfolios know that the U.S. tobacco manufacturer is a company with stable growth that dominates the U.S. and the world tobacco market with Marlboro, the most popular brand of cigarettes sold.
With a cash flow of almost $4 billion, that the tobacco giant can generate every year from its operations, there are enough funds to sustain growth and to raise the dividend to the shareholders, who are benefitting from a dividend yield of 3.39%. It is well above the industry’s average of 2.24%, even though the stock may look overvalued.
Disclosure: I have no positions in Altria Group.
Start a free seven-day trial of Premium Membership to GuruFocus.
